Wednesday, 10 September 2014

Inequality in New Zealand

Yesterday evening in Auckland we had another interesting Law and Economics Association (LEANZ) event, with Max Rashbrooke talking on 'Inequality in New Zealand', largely based on his book Inequality: A New Zealand Crisis, published by Bridget William Books last year. Max is a fine presenter, and he's also got an interesting website (a joint project with the New Zealand Council for Christian Social Services), Inequality: A New Zealand Conversation, which among other things includes a calculator where you can figure out where you lie on New Zealand's income distribution. You may have also seen it on the Herald's website, where (according to Max last night) it rapidly got 100,000 hits.

As the hitcount shows, inequality is clearly much further up the public agenda than it used to be, partly influenced by work along Max's lines and partly propelled by the various debates set off by Thomas Piketty's Capital in the Twenty-First Century.

My own take - as I'll be explaining in another forum shortly so I'll keep it brief here - is that I can understand some focus on inequality per se, and particularly the inequality that's left after we've taken account of the impact of the progressive income tax and social welfare systems, but I've always been more concerned about inequality of opportunity than I am about inequality of outcomes.

I'm having to reconsider that a bit, though: as Max said last night, and others have also argued, you may not be able to separate out the two concepts of outcomes and opportunity so neatly. It's possible (for example) that high inequality might reduce a country's rate of growth, which is a bit of a problem for us fans of equality of opportunity: maybe a deeply unequal society can't generate the high rates of growth that equality of opportunity enthusiasts would champion as one of the best ways to help those at the bottom of the income ladder. Standard & Poor's for example came out recently with a report that said precisely that about the US economy: "Standard & Poor's sees extreme income inequality as a drag on long-run economic growth. We've reduced our 10-year U.S. growth forecast to a 2.5% rate. We expected 2.8% five years ago".

There's also a line of argument that says inequality actually interferes with people's ability to take fair advantage of opportunities. Here's what's been catchily called The Great Gatsby Curve (originally by Alan Krueger, chairman of the Council of Economic Advisers in the US, in 2012). This version comes from a Canadian economics professor, Miles Corak, who updated the original graph with more countries. You can find his write-up here at his website. Max also put a version up as a slide yesterday.

If you haven't seen it before, here's how it works. The horizontal scale is a country's income inequality, as summarised by its Gini coefficient: the further to the right, the more unequal. The vertical scale is a bit of a mouthful, but what it means is the percentage of a person's earnings that can be explained by their parent's earnings, so it is a measure of intergenerational mobility: the further up the axis you are, the more parents' income determines their kids' outcomes, so the less mobile a country is.

What you get is an overall pattern where the more unequal countries tend to be the less intergenerationally mobile. We, and Australia, don't show up too badly, by the way: we're a bit above the median level of inequality in this particular sample of counties, but on the other hand we're more open than many. We have much the same level of income inequality as Spain, the UK or Italy, but parents' income explains far less of our children's incomes than they do in those countries.
There are those who would make a strong argument from this graph - that it's the inequality that is causing the lack of mobility, and in turn that would tend to take you down a policy route emphasising redistributive policy.

I don't think that's necessarily true: I'm rather inclined to view both these outcomes (inequality and immobility) as caused by a third factor again, namely the social and economic openness of a society. In the UK you've got the class system; in much of continental Europe you've got insider/outsider labour markets. I'd still be tempted to bang away at those sorts of barriers to equality of opportunity: as far as I'm concerned, you can jack up the progressivity of the income tax system all you like, but it's not going to make a blind bit of difference to the career prospects of the young Arab girl in a French slum.

In any event, you can see the sorts of interesting ideas that arise at these LEANZ seminars. So sign up with LEANZ - you can do it here - it's a charity and can do with the subs and any spare donations you care to make. And if you've got any ideas you've been wanting to share, these seminars are a great opportunity to take them out over the fences (my hands are clean - here's a write-up of the LEANZ presentation I gave a wee while back).

Thanks finally to Ed Willis at Webb Henderson who organised the event and provided the premises and the drinks and nibbles.

No comments:

Post a Comment

Welcome to my economics blog

“The remarkable thing about economics is that once you've been exposed to the big ideas, they begin to show up everywhere … Economics offers insight into wealth, poverty, gender relations, the environment, discrimination, politics...How could that possibly not be interesting?” - Charles Wheelan, Naked Economics: Undressing the Dismal Science, 2002

"The soundest argument for markets ... is simply that, very frequently, they are the least bad of the alternatives. To paraphrase Winston Churchill's remark on democracy, markets are the worst form of resource allocation, except for all the others that have been tried" - Prof George Yarrow, Three Lectures on Privatization, Jagiellonian University, Krakow, April 1990

"And if there's one thing we've learned about flawed markets, it's that people flee from them, either physically or by resorting to back channels and black markets. Either way, flawed markets can undermine not just communities but whole nations" - Alvin Roth, Who Gets What - and Why, 2015

"Economic controversy is generally a thankless task. You cannot hope to make any impression on your opponent. Yet he is the only reader on whose interest you can count" - Francis Ysidro Edgeworth, Economic Journal, 1898

"There is some evil genius which sits at the elbow of every economist, forcing him into all sorts of contorted and unnecessary complications" - John Maynard Keynes, letter to Roy Harrod, August 1935

"We are here and it is now. The way I see it is, after that, everything tends towards guesswork" - the philosopher Didactylos, in Terry Pratchett's Small Gods, 1992

"I have never yet seen any plan which has not been mended by the observations of those who were much inferior in understanding to the person who took the lead in the business" - the blogger's creed, as foreshadowed by Edmund Burke, Reflections on the Revolution in France, 1790

"They acted as their situation naturally directed, and they who have clamoured the loudest against them would probably not have acted better themselves" - advice to Twitterati, as foreshadowed by Adam Smith, An Inquiry Into The Nature and Causes of the Wealth of Nations, Book IV, 1776